Beginner’s Guide: How to Use Terra

key takeaways

  • While still comparatively small, the Terra DeFi ecosystem boasts one of the most innovative decentralized applications in crypto.
  • Terra Station is the wallet for users who want to participate and interact with the network.
  • Staking LUNA currently yields over 7% annualized, and the staked asset, bLUNA, can be used as collateral for yield farming through projects like Anchor.

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Terra is a smart contract blockchain protocol and payments-focused financial ecosystem powered by decentralized, scalable, and algorithmically governed fiat-pegged stablecoins. The Terra ecosystem offers an innovative set of DeFi products, making the protocol worth exploring.

About Terra

Released in January 2018, Land is a high-performance, scalable blockchain protocol based on the Cosmos SDK. It uses the Tendermint Delegated-Proof-of-Stake (DPoS) consensus mechanism to ensure sufficient decentralization while offering low-cost transactions with fast settlement speeds. However, what sets Terra apart is not the high performance of the underlying technology, but the thriving ecosystem of innovative and unique user-centric applications built on top of it.

Decentralized applications such as Anchor, Mirror, Pylon, Mars, and Spectrum have unlocked a world of investment and yield farming opportunities on Terra, attracting hundreds of thousands of users and a notable number of developers to the protocol. Also, after completing his recent Columbus 5 In the update, Terra became interoperable with blockchains like Cosmos, Solana, and Polkadot, making its growing ecosystem of DeFi applications more accessible to participants on these blockchains.

Cross-chain interoperability also means more utility and demand for Terra’s flagship product: the decentralized, algorithmically governed UST stablecoin. across bridges like wormhole and TerraBridge, users can easily move UST between Terra and Ethereum, Binance Smart Chain and most other blockchains, and use it for various purposes in the multi-chain world.

Create and fund a wallet

Getting involved with the Terra ecosystem requires setting up a wallet.

While there are several options to choose from, arguably the best is the Terra Station wallet created by Terraform Labs. It is a non-custodial wallet available as a mobile app, browser extension, and native Windows and iOS app. It offers a user experience similar to MetaMask, although it offers fewer features, such as in-wallet token swaps or NFT support.

Source: Terra Station

Once you have downloaded Terra Station from Terra’s official website, follow the simple steps to create a new wallet. Here it is essential to create a backup of your Seed Phrase and store it in a safe environment, preferably with an air gap. This is because the Seed Phrase gives you, or anyone else, access to your private key, which in turn gives you access to your funds. Therefore, it is essential to write the Seed Phrase on a piece of paper and keep it in a safe place, or use a more durable solution, such as titanium.

After creating a wallet, you will need to fund it with some LUNA tokens. LUNA is Terra’s native staking token used for governance, mining, and a volatility absorption tool for Terra stablecoins that captures rewards through seigniorage and transaction fees. You need LUNA in your wallet to pay transaction fees. The easiest way to get LUNA is to buy it through a centralized exchange like Binance, Coinbase, Phemex, or FTX. Once you’ve done that, simply withdraw the tokens to your Terra Station wallet address, which can be found at the top of your wallet app or browser extension.

Alternatively, those with funds in Ethereum can purchase a wrapped version of Luna (wLUNA) via Uniswap and transfer it to the Terra Station wallet via Terra Bridge.

Earth Bridge
Source: Terra Bridge

browsing through Earth Bridge it’s pretty intuitive: connect your Ethereum wallet to Terra Bridge, select the Ethereum network from the “from” dropdown on the left side of the app, choose Terra on the right side, select LUNA from the “active” dropdown, configure the amount, paste your Terra Station wallet address into the “destination address” and click next. Once you have approved the transaction on your MetaMask, Terra Bridge will automatically exchange wLUNA for LUNA and deposit it to your wallet address on the Terra network. If you have funds in Solana, you can follow the same process to move funds just using the wormhole bridge.

exploring earth

So you’ve created and funded your wallet, and now you’re wondering what to do next.

The first thing you’ll want to do is put the LUNA you bought by staking it to work. Terra Station. As Terra is a Proof-of-Stake based proxy protocol, it relies on a set of 130 validators to verify, clear transactions and protect the network by running full nodes and allocating new blocks to the blockchain. In exchange for their service, validators and delegators can earn a steady stream of income from transaction fees and seigniorage, currently amounting to approximately 7.07% for delegators and 7.47% for validators.

To become a validator on Terra, users must bind their LUNA tokens for a minimum of 21 days and be in the top 130 participants, or have other users delegate their holdings to LUNA. This creates a way for everyone to put their LUNA tokens to work by staking or delegating them to validators, who will then share a portion of the revenue they earn with their delegators.

land staking
Source: Terra Station

To delegate LUNA, navigate to Terra Station and select “Staking” from the menu on the left side of the page. When you do this, a new dashboard will open showing a list of available validators. After selecting the validator of your choice by clicking on its name, another panel will open, where you can delegate your LUNA by clicking on the “delegate” button.

From here, you are all set and your linked LUNA (bLUNA) will automatically accumulate performance. However, if that’s not enough and you want to do more, you can use your bLUNA tokens on the Anchor protocol to get even more performance by borrowing UST. Anchor pays you to borrow UST with its native ANC token, and UST can be deposited on the same protocol for a fixed interest rate of 19.49%.

Borrowing and lending at Anchor is simple. Navigate to the “borrow” page of the app, click the “borrow” button, set your desired loan-to-value ratio, and deposit your bLUNA collateral. Once you’ve done this, you’ll have UST in your wallet, which you can use for whatever you want, including buying other native Terra tokens at TerraSwapinvest in synthetic shares or provide liquidity in Mirroror agriculture in Spectrum Protocol.

Getting to grips with Terra while the ecosystem is still relatively young and developing can give users a huge advantage over the broader market. Some of its decentralized applications like Anchor and Mirror have become successful and big enough to rival even some of Ethereum’s DeFi “blue chips”. Terra experienced a breakout period in 2021, entering the top 10 cryptocurrencies by market cap when LUNA broke above $100 for the first time. With protocols such as Mars, Spar, Loop Finance, and Alice expected to launch in early 2022, Terra is well positioned to continue its trajectory and see further adoption in the future.

Disclosure: At the time of writing, the author of this feature owned ETH and several other cryptocurrencies.

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